India May Be the Cashless One Soon

Some called it a masterstroke, some a big blunder, and many insinuated that it was a publicity stunt by India’s most popular PM in recent times! Yet, Modi’s sudden declaration of 86% of the currency no longer being legal tender made even the most disinterested homemaker sit up and wonder about its repercussions.

It was a multi-pronged strategic move, made with ostensibly three main objectives – to fight against black money, to counter the threat of the economy being flooded with fake currency, and to stop terror funding. However, cynics suspect it is a drastic move by a PM who did not have much to show for his tall claims of fighting corruption, during his election campaign. The timing of the move is also conspicuous, with not just the Modi Government reaching the halfway mark, but also the upcoming elections in Punjab and UP. Given the fact that election campaigning funds constitute one of the most popular havens for exchanges of black money, it can certainly be argued that by choking their campaign funding, Modi is dealing an below-the-belt blow to his opponents ahead of the critical constituencies’ elections.

Modi ‘s supporters though, see the timing in a very different way. They believe that the timing was perfect for the PM to make his strong stance against corruption absolutely clear, and cleaning up of election process was a very good first move. Gold and real estate, the other two major parking spots for black money, which thrive on unaccounted-for cash transactions, have already experienced a sharp dip in prices as well as transaction volumes post the move.

On the commercial side, there are umpteen questions to be answered. Three segments of the population have gone unnoticed, perhaps: the non-cash paying segment, the banking-illiterate segment, and the avid risk-averse individuals. Even if the cleansing potential of a cashless economy can certainly not be dismissed, the move does not take into account corruption that could take place in-kind rather than cash, which could become rampant, given the new policy. Non-cash payments can take forms of ‘gifts’ and ‘rewards’, (not particularly helping in creating a familial atmosphere, in the end). The next segment consists of the population who are unwilling to be literates of banking. Call it lack of awareness, or inadequate and incomplete financial inclusion policies, 67% of India’s population being rural, and a large percentage of them living without even as much as a bank account, India going cashless, does seem like a far-fetched dream.

One of the other segments to address is the e-commerce consumers. While e-commerce transactions are gaining momentum and the use of plastic money is proliferating, most still rely heavily on cash to make payments for day-to-day transactions, but also products that are delivered home. POS cashless transactions are consistently on the rise; however, lack of proper infrastructure is still a major deterrent. India simply does not have the technological base to compete with other cashless economies like Belgium, Canada, US, etc. Hindrances like slow internet connections or lack of connections, and low cyber security in several remote areas, call for immediate attention.

There are some significant roadblocks that need redressal. Becoming a cashless economy is not insurmountable. It needs long term solutions within a short span of time, especially when there is liquidity crunch in the market. To convert a major segment of the population to online financial users, implementing stronger cyber security laws is necessary. At the same time, financial inclusion must become the mainstay of policy-makers, and banking literacy must take center-stage in knowledge dispersal. Unless India becomes an Akodara, India as a cashless economy may be a thing of the distant future.